Canadian Mining Journal


Clustering may prevent growth

Last year  marked the second busiest year in history for mining M&A activity. PwC’s “Global Mining 2011 Deals Review & 2012 Outlook: On the Road Again” report noted that more than 2,600 M&A deals worth $149...

Last year  marked the second busiest year in history for mining M&A activity. PwC’s “Global Mining 2011 Deals Review & 2012 Outlook: On the Road Again” report noted that more than 2,600 M&A deals worth $149 billion were announced in the mining sector in 2011. Canada led the pack with 30% of all 2011 global mining acquisitions involving a Canadian buyer.

A common trend amongst both developed and growth  markets is a bias towards transacting within their own respective regions. The report indicated that very little “cross-pollination” occurred between the two worlds.

Regarding Western-led deals, 72% involved acquisitions of projects in another developed world region. In Canada alone, 61% of Canadian-led acquisitions involved projects in the country.  Our growth market counterparts followed suit. Some examples include:

  • 64% of Chinese-led acquisitions involved projects in mainland China
  • 90% of Russian-led acquisitions involved projects in Russia
  • 75% of Brazilian-led acquisitions involved projects in Brazil
  • 100% of Mexican-led acquisitions involved projects in Mexico

Of notable exception is India. While half of Indian-based acquisitions included an India-based project, Indian buyers extended geographic reach more broadly, including deals in the U.S., Germany, France and Austria. Other notable exceptions involved deals led by the new generation of Chinese mining powerhouses, many of whom have the know-how to extend geographic reach into the West.

On the other hand, many developed world buyers are “playing it safe.” not aggressively extending their geographic reach. For developed buyers, continuing to transact only within developed markets will act as a barrier to long-term growth. The report indicates that roughly three-quarters of known reserves lie in countries outside the developed markets.  The figures don’t lie. Developed nations will have to ask themselves, “What is the long-term cost of not doing more business in these markets?”

In 2011, growth markets by value represented 24% of acquisitions, nearly 50% higher than the total deal value at the 2006 market peak.  While these markets aren’t dominant yet, with each passing year, growth market miners increasingly become forces to be reckoned with.  The new class of growth market  buyers, with deep pockets, deep expertise in the frontier markets and the flexibility under the principles of state capitalism are likely to be formidable competitors to miners from the West in the M&A sector.

To effectively approach a growth market and reduce the risk of a deal cancellation, Western entities, especially boards and shareholders, will need to reconsider the manners in which the balances of risk and reward are weighed.

Looking ahead

In 2012, the report noted record M&A volumes and values in the global mining sector. With the demand for new projects, rising production costs and declining developed world reserves, miners will seek out targets to build scale and achieve cost efficiencies. 

Forecasts for 2012 include:

  • Financial buyers (Sovereign Wealth Funds, specialized private equity, large pension funds and hedge funds) will re-evaluate their approach to the resource sector.  Private equity buyers are likely to utilize debt-like instruments, seek out resources which do not require multi-billion dollar, follow-on investments in infrastructure, focus on resources with unique drivers and low risk profiles, or acquire projects  that do not have a “logical strategic buyer”
  • The “top five” resources (gold, copper, coal, iron ore, silver) are expected to be busy.  However, it’s not likely that M&A valuations in the gold sector will be bid up to bridge the gap between the price of gold and the price of gold equities.
  • Western buyers will be forced to identify business models that make the growth market deals “work.”
  • An increasingly friendly investor climate will prompt an “African Renaissance” characterized by increased investment into Africa’s unparalleled mining sector.

For more information, please visit PwC’s mining site at:

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